M/S GREEN EDUCATIONAL SOCIETY,BATHINDA vs. COMMISSIONER OF INCOME TAX, (EXAMPTION), CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I. T. A. No. 684/Asr/2017

Green Educational Society, vs. Commissioner of Income Tax Green Palace Road, Green (Exemptions), Chandigarh City Colony, Bathinda [PAN: AABAG 9525A] (Appellant) (Respondent)

Appellant by : Sh. P. N. Arora (Adv.) Respondent by: Sh. M. P. Singh, CIT-DR Date of Hearing: 15.04.2019 Date of Pronouncement: 18.06.2019 ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee-society, directed against the Order under section 12AA(1)(b)(ii) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 30.8.2017 by the Commissioner of Income Tax (Exemptions), Chandigarh (‘CIT(E)’ for short – ‘the competent authority’ hereinafter) refusing to grant registration u/s. 12AA of the Act.

2.1 The assessee, registered under the Societies Registration Act, 1860 on 24.9.2013, is running a school under the name and style of ‘Mother’s Pride School’ at Bathinda since 2014. The school is being run on a franchise basis, entering into a franchise agreement (not on record) with M/s. Mother’s Pride Education Personna

2 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) Pvt. Ltd. The assessee-society applied for registration u/s. 12AA of the Act on 13.02.2017, which was denied by the competent authority, holding as under: ‘13. It would be pertinent to emphasize that the process of granting registration to charitable trust/ society is not an idle formality; it enables the Commissioner to come to the conclusion on the basis of documents, accounts, etc. filed for the purpose, whether the trust/society deserves registration [Anand Marg Pracharaka Sangha Vs CIT (1996) 218 ITR 254 (Cal)]. Evidently in the present case the applicant society is running a franchise purely on the basis of a well defined business model with no intent of imparting education to public at large. In the instant case, given the above, there is no way the genuineness of activities of the society can be corroborated with the stated aims and objects given that the society's activities are in the nature of business and can't be covered under the term 'charitable purpose’. It is clearly the case that running a playschool doesn't satisfy the tenets laid down by the Apex Court in the case of Sole Trustee, Lok Sikshan Sansthan as to what comprises 'education'. Accordingly, the application under section 12A for grant of registration is rejected.’

2.2 A perusal of the impugned order reveals the following to be the objections informing the refusal of the said registration: (a) despite its’ stated objects, the only activity being pursued by the assessee- society, is running a playschool, which does not fit into the concept of education as enunciated by the Apex Court in Sole Trustee, Lok Sikshan Sansthan Trust v. CIT [1975] 101 ITR 234 (SC). Despite claim of upgradation (up to fifth standard) w.e.f. 01.04.2017, no evidence with regard thereto had been furnished. Besides, the agreement does not speak of running a primary school; the Mother’s Pride chain is that of a playschool (paras 2, 6 to 8, of the impugned order).

(b) the franchise agreement is a clear cut profit-sharing arrangement, geared toward maximizing returns. That is, the emphasis is toward generation of profit, with the management granted leeway to fix the fee structure. Surely, a franchise agreement with a corporate entity to run a school on commercial basis could not claim to be a charity. The education model limits the benefit to a select few, which cannot be said to therefore inure for the benefit of the general public (paras 8, 9-12). (c) the structure of the society and the composition of its’ membership shows it to be controlled by one family, undermining its’ status as a public institution (para 10).

3 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) 3. We shall consider each of the objections by the competent authority, which has in fact gone into his adjudication, also finding reflection in his final para (#13).

3.1 The ld. counsel for the assessee, Sh. Arora, upon being questioned with regard to the objection at (a) above, would state of the school having been upgraded to class 5 w.e.f. 01.4.2017. There is, even as noted at para 6 of the impugned order, no evidence to that effect and, in fact, even before us. The said contention is thus, even as observed during hearing, of no consequence. Sh. Arora would, in this context, also place reliance on the decision in CIT(E) v. Infant Jesus Education Society [2018] 404 ITR 85 (P&H), wherein also the appellant-society was running a school from class play to class kindergarten. The said decision has been carefully perused. In the said case, the competent authority denied approval u/s. 10(23C)(vi) on the ground that the Right of Children to Free and Compulsory Education Act, 2009 (commonly known as RTE Act) was not applicable to a school being run by the applicant-society. The said Act defined a ‘school’ to mean a recognized school imparting ‘elementary education’ (s. 2(n)), which is further defined there-under to mean education from first class to eighth class (s. 2(f)). The Tribunal, whose decision stands not interfered with by the Hon’ble High Court, was of the opinion that in-as-much as the RTE Act did not apply to the appellant-society, reference thereto by the competent authority and denial of registration on that basis, was not valid. That is, the said Act cannot determine whether the applicant was, or was not, imparting education. The Hon’ble Court, after reproducing the operative part of the tribunal’s order, which reads as under: (pg. 90) ‘A bare perusal of the provisions of section 2(n) read with section 2(f) would reveal that the schools which are covered by the provisions of the RTE Act are those which impart elementary education, meaning education from class 1 to class 8. In the present case it is an

4 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) undisputed fact that the school run by the assessee-society is imparting education below class 1. Clearly the assessee-society is not a school as per the definition given in the RTE Act in section 2(n) and is therefore not covered by the provisions of the RTE Act. Further the provisions of section 12(l)(c) read along with the proviso reveals that where the schools imparting elementary education are also imparting pre-school education, the provision of compulsory admission to 25 per cent, students belonging to the weaker section of the society, shall apply to the pre-school education admission also. In the present case the school run by the assessee-society is not imparting elementary education in the first place therefore the question of attracting the provisions of section 12(1)(c) and the proviso thereto does not arise at all. Therefore in our considered opinion the school is not governed by the provisions of the RTE Act at all and the basic premise of the learned Principal Chief Commissioner of Income-tax for denying approval of the assessee-society therefore fails."

, concluded as under (at pg. 90): ‘Learned counsel for the appellant-revenue has not been able to show that the provisions of the RTE Act are applicable in the present case. He has further not been able to show that the findings recorded by the Tribunal are in any way illegal or perverse warranting interference by this court. Consequently, no substantial question of law arises and the appeal stands dismissed.’

There is no reference to the RTE Act in the instant case. Again, there is no reference to the decision in Sole Trustee, Lok Sikshan Sansthan (supra), or even the scope of the term ‘education’ under the Act, and which forms the basis of the principal objection in the instant case, in that case. How could, then, one wonders, the decision in Infant Jesus Education Society (supra), thus, have any bearing in the present case. The issue in the said case was whether the non-application of RTE Act would by itself operate to oust an applicant for registration under the Act, given the scope of the term ‘elementary education’ under the said Act. The issue as to what constitutes ‘education’, or if what was imparted could be, in law, regarded as education, given the decision by the Apex Court in Sole Trustee, Lok Sikshan

5 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) Sansthan (supra), was never the subject-matter of consideration by either the tribunal nor, consequently, by the Hon’ble Court, for the said decision to have any bearing in the matter. It is well-settled, to quote from Goodyear India Ltd. vs. State of Haryana & Anr. [1991] 188 ITR 402 (SC), that ‘a precedent is an authority only for what it actually decides and not what may remotely or even logically follow from it’ The principle is well-settled, toward which reference is also drawn to the following decisions: Rajpur Ruda Meha vs. State of Gujarat [1980] 2 SCR 353; CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297 (SC); Lachman Dass Bhatia Hingwala (P.) Ltd. vs. Asstt. CIT [2011] 330 ITR 243 (Del)(FB); Blue Star Ltd. v. CIT [1996] 217 ITR 514 (Bom). No substantial question of law was found by the Hon’ble Court to arise from the order by the tribunal, for it to interfere. The present case, accordingly, cannot be said to be covered by the said decision.

3.2 Next, we may consider the decision in Sole Trustee, Lok Sikshan Sansthan (supra), to examine the validity of the objection by the competent authority in the present case. We do so for the completeness of our order even as no challenge thereto, apart from the reliance on Infant Jesus Educational Society (supra), was made by Sh. Arora during hearing. In the said decision the Apex Court had the occasion to examine the scope of the word ‘education’ in section 2(15) of the Act. It explained that it connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling, and has not been used in the wide and extensive sense according to which every acquisition of further knowledge constitutes education. It may, being pertinent, useful to reproduce the relevant part of the said decision, as under: ‘The sense in which the word "education" has been used in s. 2(15) is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word "education" has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and

6 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word "education" is used in cl. (15) of s. 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling. [emphasis, ours] Now, a playschool cannot, by any stretch of imagination, be regarded as scholastic instruction. ‘Education’, as the word appears in s. 2(15), though not to be understood pedantically, has to have the elements of structured courses, designed to impart knowledge/training; accreditation; examination, etc., and cannot be understood in a loose sense. Now, children would get ‘educated’ merely by playing with each other. The games they play at the playschool may, apart from being entertaining, sharpen their responses and even thinking. A child’s thinking is aroused by everything or anything he sees around himself, including his companions, whose company itself may be instructive. Why, a child may absorb a lot of things observing his parents and elders at home, or otherwise taught by them, each paramount in his development, viz. to walk, speak mother tongue, etc., which though cannot be regarded as toward ‘education’, i.e., as understood under the Act. One gets educated, as explained in Sole Trustee, Lok Sikshan Sansthan (supra), even by seeing pictures, visiting galleries, museums, etc.; life itself being a great school. The same, however, it opined, cannot be regarded as ‘education’ u/s. 2(15) of the Act. The competent authority has, in our clear view, rightly alluded to the said decision, stating that what stands imparted cannot be regarded as ‘education’ u/s. 2(15) of the Act. The assessee has not controverted the finding by the ld.

7 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) CIT(E) that the Mother’s Pride chain is of a playschool or that the agreement does not provide for a primary school and, besides, not furnished any evidence toward the said upgradation of the ‘school’ to an elementary school, i.e., class 1 onwards (up to class 5), i.e., as claimed. The first and the principal objection of the competent authority is thus valid.

3.3 Coming to the second objection, the thrust thereof is that the dominant object of the assessee-society is to make profit, which therefore cannot be regarded as charitable per se, and cannot, for that reason, be regarded as a tax-exempt activity under the guise of ‘education’. We have already opined that the only activity being pursued in furtherance of its’ objects is of a playschool, which would not qualify as ‘education’ under the Act. The question of examining the pre- dominant object – which is purely a matter of fact, in running the said school, thus, does not arise for consideration. This is as only where the said activity qualifies to be ‘education’, that the pre-dominant object in pursuing the same falls for being examined in-as-much as where and to the extent it is profit making, the same may defeat the claim to being a charitable institution. Reference here may with profit be made to the decision in, inter alia, ICAI v. DGIT [2012] 347 ITR 99 (Del), upholding the primacy of the pre-dominant object in pursuing the activity as being determinative of its character, for which reference, among others, stands made by it to Addl. CIT v. Surat Art Silk Cloth Mfger’s Ass. [1980] 121 ITR 1 (SC).

3.4 The third objection per the impugned order is with regard to the membership of the society, from which its’ governing board is selected. While the competent authority states it to be limited to one family, the assessee claims it to be comprised of three families. In our view this is a largely irrelevant consideration. What is relevant, irrespective of who manages the society, is that its’ activities inure to the

8 ITA No. 684/Asr/2017 Green Educational Society v. CIT(E) benefit of general public. While certain sections of the public would get excluded for economic reasons, that may by itself not oust its’ claim as a public institution. In fact, it is to provide inclusiveness, breaking social and economic barriers, that the RTE Act, inapplicable to the asessee’s school, being a playschool, has been enacted and made applicable to all types of schools. That is, that the assessee does not qualify to be a school there-under is a different matter, so that all that assumes relevance, under the circumstances, is if the activity pursued in fulfillment of/in achieving its’ object qualifies to be ‘education’, which we have found it as not.

By Order